Dealing with stressed contracts in the energy sector

Energy firms have plenty of options for dealing with contracts facing strain

The S-curve in the pricing formula of many contracts is not an impregnable defence against volatility

Ashley Wright, Richard Steenhof

16 Apr 2015

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In the past few years, energy companies had become used to high oil prices and many expected this trend to continue. Prolonged high oil prices generated significant investment by industry players, which was often underpinned by contracts that assumed such high prices were here to stay.

Now, times have changed. On June 19 last year, front-month Brent North Sea crude oil futures closed at $115.06 a barrel (/bbl). Having plunged below $50/bbl in January, the front-month contract settled at just $58